Thursday, September 16, 2010

I woke up this morning to find people on the Yahoo chat board saying that I should be hanged and the company saying they deny “all the allegations contained in the blog” and telling me they “will be aggressively pursuing all legal remedies.”

To the latter there is a simple defense to this – which is to demonstrate that their site did not work. I have done so with a video (now placed on YouTube). I am not going to embed it because it is frankly boring as most of my readers would know how to book a plane flight or a hotel online anyway.

Several journalists wanted my comment – and it was the same… just test it out. Everything needed to verify my blog post can be done from your office in your little hedge fund or in the SEC. Journalists both inside China and outside China have asked me for comment – and the comment is the same… just try and book certain things with the website.

I was explicit – there is an old-fashioned phone-based travel agency underlying this site. If you are in China and you give your 11 digit mobile phone number there are many places where you think you are going to complete the booking process online and then a box turns up to expect a phone call from a person to actually complete the booking process.

As far as we can tell this is not an internet travel agent in that you cannot finalize a transaction online. This is from a company that once said this in their press release:

The new website will integrate the Company's three previous, separate ones (Classic, TRIPEASY, and Easytrip versions) into a single more integrated and streamlined platform. Accessible via http://www.cnutg.com , the website is a result of a year of research and development based on customer ratings and feedback. It offers comprehensive and timely travel information and services, including guaranteed low prices, high visual appeal, map support technology and easy payment functions. Additionally, new functionality such as the ability for customers to purchase cell phone minutes using the website should drive additional customers to the site.

My explore found no map functionality, no online payment mechanism, no formalized customer feedback system – indeed very limited cookies. There was a distinct lack of information (fare terms, reasonable sized pictures of hotels etc). The site did not match the press release. You can still however buy many things offline. As I said – there is a travel agent there – one that pays real commissions out.

Alas there were some things we could not find any way to buy with the website at all such as international hotels. That is despite the company announcing a partnership with Agoda (Priceline). This was what the Agoda announcement said:

Under the agreement, Universal Travel Group will offer its customers access to Agoda’s international network of hotels. Through the updated cnutg.com website, travelers will be able to enjoy special Agoda promotions and instant confirmation at tens of thousands of hotels worldwide. Through this partnership with Universal Travel Group, Agoda intends to increase its exposure in the large Chinese travel market.

The press release announcing this partnership had contact phone numbers from Universal Travel Group and no contact phone number from Priceline. Anybody want to check with Priceline management how much business Universal Travel are doing with Agoda?

That said the company has fixed a few things on the website since my post. For instance the English tab on beta.cnutg.com now works. It did not work prior – and the first I heard about it working was when I was flicking through the posts on Yahoo (if only to identify any direct death threats). Also the “pick up at the airport in Shenzen” option has been disabled for me – but as of a few minutes ago it was still available for a journalist in Beijing when he tried to book a flight out of Beijing. Also now rather than some error messages I am now getting a “we will dial you back to complete” message which is clearly an improvement.

But life is not about travel companies in Shenzen and their trolls on the Yahoo chat board thinking you should be hanged. Life is joyous. Travel is one of the things that is fun – and so is YouTube. As I said, I made a YouTube video of me testing the site – and showing some of the glitches – especially the international hotels glitch. Alas it is boring and this blog aims to entertain.

So rather than think about me being hanged I suggest you look at this interpretation of Lady Gaga. It made my day…

31 comments:

Whether it was your intention or not, you have caused the UTA stock to fall and it's shareholders to suffer losses and damages. If UTA doesn't sue you, I am sure that a few angry investors with deep pockets (and investments/long-positions in UTA) will probably come after you. They may not succeed but you're going to have to deal with some legal hassles which I am sure you're not new to.

In any case, I hope you've learned a lesson. If you're going to write an "independent" research about a public company, and then short it, you better be prepared to defend your actions.

Best defense is to say that you contacted UTA and asked about the "questions" about the Internet Travel agency issues -- and they did nothing or did not respond. In your case, you didn't even bother to contact the company and inquire why the website did not work or function the way you expected. You just went out on a witch-hunt to advance your own agendas -- without giving UTA a chance to defend itself. Sorry John... but that's pretty shady...

kaja whitehouse can't seem to get any former institutional investors to comment on why they got gone near the top. some hedge fund in plano, tx told her doesn't give a crap since he doesn't own any shares anymore.

ditto on the former auditor, no comment.

does anyone know why pope asset management in memphis, tn unloaded near the top, too? they're pretty good at doing this for some reason (figuring out when to get gone).

Well done John. Look's like you've flushed out another bunch of fraudsters. Here's an article just published in the NY Post.

------------------------------

One of the biggest mysteries on Wall Street yesterday surrounded a little-known, publicly traded Chinese travel company, Universal Travel Group, which came under fire for being built on air.

The questions started flying after Australian money manager, John Hempton of Bronte Capital, posted a blog item saying the online booking and travel company, which is listed on the prestigious New York Stock Exchange, has very few real services.

"It looks like this travel site is all front end, no-back end -- there is no actual booking, no mechanism of collecting payment -- no nothing really," Hempton said on his blog, referring to the site, en.cnutg.com.Universal Travel ringing the NYSE bell on June 30.Universal Travel ringing the NYSE bell on June 30.

Hempton said he tried and failed to book a hotel. And when he tried to buy a flight, the Web site told him to pick up his ticket in a city nowhere near to where he was traveling to or from.

When the report surfaced, shares in the company plummeted, dropping as much as 31 percent before closing at $3.86, down 19 percent.

The company denied the allegations and said Universal Travel "will be aggressively pursuing all legal remedies against Bronte Capital and John Hempton for the damages caused."

But the mystery didn't end there.

Universal Travel raised $20 million in June through a secondary offering of 2.85 million shares at $7 each.

The Bronte report was posted one day after the end of the lock-up period following the offering -- during which insiders are not allowed to sell shares. It could not be learned if investors fleeing the shares yesterday included insiders.

The investment firms that underwrote and managed the June offering, Brean Murray Carret and Rodman & Renshaw, didn't respond to requests for comment.

In the afternoon, the company's most recent auditor, Acquavella Chiarelli Shuster Berkower, didn't help matters.

"We're no longer their auditors. I have nothing to say to you," said Dave Svoboda, a member of the firm, told a reporter seeking information.

Shortly after that, Barry Kitt, a big investor in Chinese companies and general partner in the Plano, Texas, hedge fund, Pinnacle Fund, said, "I don't own the stock so I don't care," before hanging up the phone.

Kitt is listed as the company's 11th largest investor, with 0.75 percent of the outstanding shares as of the end of June.

Universal Travel, which is based in Shenzhen, China, was flying high only recently. On June 30, CEO Jianping "Jenny" Jiang rang the opening bell on the NYSE.

The stock moved to the Big Board in October 2009, after being accepted on the American Stock Exchange in May of that year.

Mutual fund giant Fidelity, which is a top five shareholder, declined to comment. The Ohio Public Employee Retirement Systems, which is a top 10 shareholder, didn't respond to a request for comment. kwhitehouse@nypost.com

One of the biggest mysteries on Wall Street yesterday surrounded a little-known, publicly traded Chinese travel company, Universal Travel Group, which came under fire for being built on air.

The questions started flying after Australian money manager, John Hempton of Bronte Capital, posted a blog item saying the online booking and travel company, which is listed on the prestigious New York Stock Exchange, has very few real services.

"It looks like this travel site is all front end, no-back end -- there is no actual booking, no mechanism of collecting payment -- no nothing really," Hempton said on his blog, referring to the site, en.cnutg.com.Universal Travel ringing the NYSE bell on June 30.Universal Travel ringing the NYSE bell on June 30.

Hempton said he tried and failed to book a hotel. And when he tried to buy a flight, the Web site told him to pick up his ticket in a city nowhere near to where he was traveling to or from.

When the report surfaced, shares in the company plummeted, dropping as much as 31 percent before closing at $3.86, down 19 percent.

The company denied the allegations and said Universal Travel "will be aggressively pursuing all legal remedies against Bronte Capital and John Hempton for the damages caused."

But the mystery didn't end there.

Universal Travel raised $20 million in June through a secondary offering of 2.85 million shares at $7 each.

The Bronte report was posted one day after the end of the lock-up period following the offering -- during which insiders are not allowed to sell shares. It could not be learned if investors fleeing the shares yesterday included insiders.

The investment firms that underwrote and managed the June offering, Brean Murray Carret and Rodman & Renshaw, didn't respond to requests for comment.

In the afternoon, the company's most recent auditor, Acquavella Chiarelli Shuster Berkower, didn't help matters.

"We're no longer their auditors. I have nothing to say to you," said Dave Svoboda, a member of the firm, told a reporter seeking information.

Shortly after that, Barry Kitt, a big investor in Chinese companies and general partner in the Plano, Texas, hedge fund, Pinnacle Fund, said, "I don't own the stock so I don't care," before hanging up the phone.

Kitt is listed as the company's 11th largest investor, with 0.75 percent of the outstanding shares as of the end of June.

Universal Travel, which is based in Shenzhen, China, was flying high only recently. On June 30, CEO Jianping "Jenny" Jiang rang the opening bell on the NYSE.

The stock moved to the Big Board in October 2009, after being accepted on the American Stock Exchange in May of that year.

Mutual fund giant Fidelity, which is a top five shareholder, declined to comment. The Ohio Public Employee Retirement Systems, which is a top 10 shareholder, didn't respond to a request for comment.

Congrats, John,for that research. I`ve seen some comparable thorough work of short sellers in my life, but they never made it public. You have been open and transparent so the only legal hassle I'd expect is for the UTA management. Keep up the good work.

Since i actually work in one of the largest Online travel sites in the World, I know a thing or two. I tried a simple negative test. I tried to Depart on 23 September and Return on the 20th September. Yes, you should not be able to even continue with this selection past the first page. However, on this website there was no error and it let me select flights for both legs of the trip.

Then during the confirmation screen the return date automatically was changed to the 23rd ( the date of departure ), without even telling me. Try this on a site like travelocity.com where the Return date is selected before the Departure Date. You will see an error ( Your entered date is invalid. Please enter or select a different date.). This is the simplest form of error checking that a travel website could do. I am shocked that even this is not in place.

You are very dishonest in this new post. Your previous post clearly claimed that UTA is a "fraud" to benefit your short position. The article was written without minimal amount of due diligence.

UTA is primarily a domestic company in China, serving primarily second and third tier cities there. Its primary products to package tour - sold via agents. It had almost no international exposure so far, except some attempt by the company to partner with Priceline.

You clearly do not understand how online booking is done within China, made no attempt to contact the company when you discovered deficiencies in company's English version of the web site, and mis-represented company's financial. Yet you are just a "messenger".

BTW, the Chinese version of the web site works fine, and has much richer functionalities.

I never even received an email on creating an account there. When i did a hotel reservation in China, I got a standard message :"Success! Your order has been completed! Please check your email for details regarding your hotel reservation.# ● If there are any problems, please call us toll-free at 400-888-9966."

"Whether it was your intention or not, you have caused the UTA stock to fall and it's shareholders to suffer losses and damages. If UTA doesn't sue you, I am sure that a few angry investors with deep pockets (and investments/long-positions in UTA) will probably come after you. "

He did no such thing. If UTA is a fraud, then those investors' stakes are worth nothing to begin with -- only they don't know it yet. The shares would have continued to trade down and they would have eventually lost everything. This is the difference between a "paper loss" and an "economic loss". If anything, John simply brought the economic loss into the open.

Then again, if John is wrong, then UTA stock will eventually recover, and those investors should be thanking John to be given an opportunity to buy more cheap stock.

Besides, JH made no misstatements of fact and therefore is not liable for anything. The company is not going to do anything -- and in fact if they really try to make a big mess out of it, their fraud would become even more exposed to the world, and they would shoot themselves in the foot.

"Then again, if John is wrong, then UTA stock will eventually recover, and those investors should be thanking John to be given an opportunity to buy more cheap stock."

If the company is NOT fradulent and John Hempton was wrong, then there will be investors and took a HUGE loss in the past 2 days. What about those investors?

They suffered REAL losses based on a misleading article written by John Hempton. Not only that, but Hempton took a short position on UTA stock so he's incentivized to say negative things about the company. Whether the facts are accurate or not, real investors suffered REAL losses because they sold in panick over what Hempton wrote. Hempton's article did not paint an accurate picture of the company -- and did not contact the company to provide a balanced, unbiased view.

Moreover, John Hempton did not provide disclosures on whether he owned or shorted the stock or the timing of his trades on UTA. Did he own a short position before writing the stock or only after writing about the fraud allegations? He did not disclose this and thus, his article and his actions seem extremely shady.

John, while I am all with you on the general issue, I have no problem with taking the return flight before the departure. Airlines might not like this for nonlinear pricing reasons[*], but for mathematically trained people there should be no problem with that. Of course the significantly larger half of the population would probably get confused by it...

[*] I have flown on the same airplane with two tickets from different airlines (code sharing). It was a hassle to make sure the seat next to me stayed empty, but ultimately they've figured it out. No double miles nor booze though. Similarly people sometimes skip legs of their flights, which may or may not be legal in some areas of the globe. Saturday stay is another issue. Stupid fine print.

Well done John, you deserve to benefit from your research. Hope your short was extremely profitable. Kenneth, Kenneth, UTA management has a responsibility to deliver on their grandiose plans; they should be sued for talking up the stock and making fanciful mis-statements!! Investors who have been misled by CEO 'Jenny' should be asking for some answers. She however is safely tucked away in China where her investors cannot book a flight to on their own companies' website. Why did they not do their due diligence on this like Mr.Hempton

the more I'm in this investing game the more I am starting to feel that hedge funds that short companies and uncover fraud are the only part of the hedge fund and trading industry that create REAL TRUE social value outside of just creating trading volume/liquidity and making rich people richer.

nicely done John. great analysis and I'm sure you saved some pensioners future losses by uncovering this clearly ridiculous fraud.

@Kenneth: Are you serious? First, did you read the article - there WAS disclosure that he was short. It makes no sense to - and I mean, no sense, unless _you_ are up to something unethical - to make an accusation that is so clearly false (you should do more than look for the keywords "Disclosure:" even though that would suffice. Did you read the article? And the "investors who suffered real losses" based on his misleading article? Well, if you are an investor, you can ride it out until he is proven wrong. They are "investors" right - can hold for more than a day or two, no? (And "misleading" - love to hear a bit of concrete justification for that accusation!)

Do you not acknowledge the tiny chance that the investors actually lost money by investing in a less-than-adequately presented enterprise (in English we call this fxxxx) and the only harm they suffered was not being able to unload their losses onto an even greater fool? Is this not even conceivably possible?

We need to call ask the CFO to clarify things and put JH in his place. Or the accoutants. Or the auditors. Or NYSE. Oops, what a coincidence, such bad timing. Oops, how unlucky. Oops. Oops again. My what bad luck.

It's so sad that you are all siding with John Hempton on his article whereas (well it's obvious since you'll find more loyal Hempton fans on his blog than those like me, who are trying to make sense of it all).

In any case, the REAL sad part of this whole thing is that you've all made the CONCLUSION that UTA is fraudulent and a scam.

This is UNTRUE, well, at least not proven yet. As in the rule of Law, in the United States at least, INNOCENT until proven GUILTY.

You (John included based on his analysis) have ALL written this company off as a scam, fraud, shell of a company, etc. However, you have not even given the company a chance to respond to these allegations. You've all come up with this conclusion on your own and from Hempton's comments -- which are of course, biased because he is SHORT.

It's so sad...you're all making this incredible CONCLUSION that UTA is a scam -- without any facts except that the website has problems -- to back it up.

Yes, I will concede that their INTERNET travel website SUCKS and has REAL issues. However, problems with a website (my company develops websites for a living) does not translate into fraud. Just because Yahoo or Google's websites are down or experiencing problems or technical glitches, DOES NOT MAKE GOOGLE OR YAHOO FRAUDLENT COMPANIES.

Sheesh, I know you are all short and have an incentive for the company to fall -- but seriously, stop drawing conclusions based on one person's opinion that UTA's website is crappy. Crappy website does not equal fraudulent company. It means they need to hire better engineers to fix up their website!

WAKE UP PEOPLE and STOP THE WITCH-HUNTING. You've already made profits on your short positions -- and IF (thats a big IF) this company truly is empty and fraudulent as Hempton accuses, then I will eat my words and come back and post a public apology on this blog.

However, UNTIL THIS HAPPENS, I will continue to defend what I believe -- which is, UTA has a crappy website, but is far from a scam.

Big Travel Guy said...I need to speak a little about travel in China. China is a large country with an enormous emerging middle class and this class will travel. That said, I need to mention "Universal Travel Group, (UTA) en.cnutg.com. There is a guy from, Bronte Capital, that badblogged this Chinese online travel company, Universal Travel Group. Seems his worst fear is that the website, (en.cnutg.com) is acting funny. I tried it and it is acting funny, slow at some corners plain stupid at other turns, but for the most part OK. To this I say, I have been in the online travel biz since 1996 and I saw Hotels.com grow up and have growing pains, I've seen Travolocity.com go through digital nightmares, Orbitz.com destroyed a whole online community of affiliates in one fail swoop. All i'm saying, is that, we growers, have all had our growing pains. Universal Travel Group, (UTA) wants to compete and it will and it will also fix the bugs, (bugs are never completely fixed, just as Micro something or another). To all this I say "This to shall pass".

Kenneth - what you seem to fail to understand is that if John Hempton is wrong, then a selloff in UTA stock is a blessing to you and anyone else who wants to be long UTA. It's nothing more than an opportunity to buy more stock cheaper.

You seem to have some bizarre idea of what is "right" and "wrong" in investing. there are certainly unscrupulous people out there who spread rumors about stocks in attempts to manipulate them, but John Hempton's post here, even if he turns out to be wrong, is not anywhere near that category.

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.